[Informer Article] Fatal Financials?

Jasonmrc · **Posted:** February 7th, 2015, 9:01 am

As you've no doubt heard by now, Jagex will be raising their Membership prices come March 1st. This has caused quite a stir of opinions all across the community, and rightfully so. Why? Because the subject has many facets.

Let me start by saying I have been a subscriber for the past 9 years, so my cost will not be raised from my current $5. There are also quite a few other loyal subscribers on RSBandB who will also remain unaffected, financially.
However the fact that my pocketbook won't change does not mean that this change won't affect me. There are multiple reasons why it may, including the potential for month-to-month members to stop playing and preventing new blood from joining. These are the two groups that will be hit the hardest by this change. I do not have a chart of how many people pay month-to-month, but I'm fairly certain it's a decent amount. This also includes those people who pay via bonds sometimes and via cash other times.

Regarding new members, as I and a few others mentioned in a discussion on the forums, this change makes subscribing more daunting: $9.49 instead of $7.99. Why did they not just do $9.99? Probably because as Shane pointed out, there is a mental difference between $5, $7.99, $9.49, $9.99, and $10. They want to charge $10, but $9.49 feels like a lot less than $10, despite being only half a dollar less. Gaining new members is something Jagex has been struggling with for the past few years, and they know it.

So why make it less likely for new members to join? I can't say exactly. But quite a few people theorize that since Jagex already has issues with gaining new members they are doing this to increase income from the month-to-monthers and essentially throwing in the towel when it comes to new members. If this is a case it is an extremely bad sign for Runescape as it means Jagex has changed their mindset from looking towards the future to looking towards the bank, and how much money they can harvest before the game finally folds. With how much they push SOF and SGS, this does seem to be the case. People will pay to gamble and look good, and once the game folds that all goes away, but Jagex still gets the money. I truly hope this is not the case.

One Redditor joked:
"'Our game is dying, lets make it more expensive to get new players to join our game.'
One of the best things about runescape was it was only $5 a month, for the price of a new game I could get a year of Runescape with it's constant updates and awesome mmoness, that is why i played it so many years ago."

While the first bit seems funny, it may be possible. His last bit is one of the big reasons why Runescape thrived so much previously. For $60, payed at only $5 a month, you could play an awesome game that was constantly being updated. Compared to single release or single player games of the time, that was a steal.

Another thing that the increased membership price will do is force more current subscribers to maintain their subscription out of fear. Say you're going to take a few months break from Runescape, it'll cost you another $1.50 a month to do that now. In the case of those of us with old prices, it is more efficient to maintain our current subscription for a year even if we never play during that time.

"Sounds to me like that is their intention with this change.
They know that they probably aren't going to ever get another large influx of new players, so instead they hold their current members hostage by threatening to jack up the sub if they leave and ever try to come back."

A few people have suggested that they should raise the price across the board, not just for new subscriptions but also those veterans like myself and many here at RSBandB. I say, why? They already ignore their loyal members, those who have continued subscribing even during some of their biggest blunders and stupidest choices. Loyalty points are a joke as are the 5 and 10 year capes, which are not cosmetic overrides and have nowhere near good enough stats for endgame so no one wears them. A single 99 cape is more than 6x better than the 10 year cape and yet can be gained in a week. Shouldn't 10 years be an accomplishment?
If Jagex were to increase the price of current subscribers it would be the final nail in the coffin.

Some people say that raising from $5 to $9.49 over 10 years isn't bad. An 89.8% increase sounds like a lot to me. While inflation certainly accounts for some of that, it certainly does not account for all of that. Can you imagine if WoW did a 89.8% increase? Who would pay $28.47 a month to play a game? Sounds crazy, doesn't it? Blizzard recently raised the price of WoW. The difference between that and this? They raised it only £1.00, other currencies were unaffected because the change was brought on due to changes of that currency's locale. According to inflation calculations based off the US CPI, an item or service of $5 in 2004 should be roughly $6.27 today. An item or service of $7.95 in 2012 should be roughly $8.20. I don't think inflation is behind the increased cost.

I still firmly believe that if this change was brought on due to financial issues at Jagex they would make other changes before charging more, or at least that's what most companies would do. They could very easily shutdown at least half their servers which should dramatically decrease their costs. It makes more sense to condense worlds and then re-open them as the playerbase can support them.

However, that is not what they are doing.

A few people have said last year's financials were reasonable, albeit not great(I have yet to see these, if anyone has a link I'd appreciate it). If the company is doing fine financially, why the increase? Jagex never gave us a reason.

If the price increase is needed, then why are they not doing other actions first?
If the price increase is not needed, then why are they doing it?

This was originally posted as an Informer Runescape article.

Adbot · **Posted:** February 7th, 2015, 9:01 am

trekkie · **Posted:** February 7th, 2015, 8:08 pm

Considering you pay 60 for the game AND pay a monthly fee, comparing RS to WoW isn't the same.

Increasing it by 1 dollar isn't much, but considering how much it would cost to buy all the expansions would make it for it.

Shane · **Posted:** February 7th, 2015, 9:00 pm

Jasonmrc wrote:

If the company is doing fine financially, why the increase? Jagex never gave us a reason.

First things first, Jagex (just as any private company) is in no way required to share with us the reason. We're the players, not the board, not the shareholders, and not the CEO. The sole objective of any corporation is to make profit. If a company wants to make a larger profit they are certainly within their right to do so. A corporation creates jobs, provides services, and innovates in the market place. All of these things are crucial for the economy and those who live in the area where Jagex is headquartered. As a result those living in the surrounding area have to be thankful for having such a high tech company headquartered in Cambridge.

Source: My personal beliefs pertaining to business.

Secondly, as RuneScape players we often only look into the bubble that is RuneScape. We don't look at what is going on in other things that Jagex does. I think it's fair to point out that Transformers was cancelled. Transformers was a huge investment with huge partners. The fact this was cancelled ultimately took a toll on Jagex's bottom line. RuneScape is success for Jagex, it's their primary wheelhouse and that's where they want to innovate (see RS Chronicle). For the last fiscal year Jagex's profits were under 1 million pounds. The previous year they were just a hair under 10 million. This is why I point to the loss of such a huge franchise like Transformers whose IP (intellectual property) is owned by Hasbro which is huge. After seeing Transformers get canned and hearing Mark Gerhard himself speak I think this is the reason that he ultimately stepped down.

Financials source: http://www.insidermedia.com/insider/cen ... ns-focus-investment/

Now doing any amount of profit is good but after you invest in something large like Transformers and it fails a corporation needs to recover those losses. This needs to happen not only for board and shareholder sanity but for the health of Jagex itself and what we love, RuneScape. It's for that reason that I ultimately see no problem with the price increase in conjunction with what I said above.

Finally, we're not Zimbabwe yet. The Zimbabwe reference is something that I made years ago on the show when people were saying that the game was in a state of complete demise. The ironic thing is, it was more true back then than it is now. Back in September the folks at Cryptic who make Star Trek Online released an update to revamp STO's crafting skill. The skill can be used to make advanced endgame gear that is pretty good. It doesn't matter about the gear, what matters in this story is how you level up the crafting skill. Previously crafting worked by combining rare and common materials with recipes and there was no real extra cost. With this update the crafting skill became a sink for dilithium (the in-game conversion of Perfect World's Zen currency) both in terms of the items that you create and the levelling of the crafting system.

When the system was released players were limited to one large crafting experience project per day lasting 20 hours. To reach level 15 (when most of the good things can be made) you require 630,000 experience. Each crafting assignment for experience gives 6,000. This means that it would take a player 105 days to level the skill to an appropriate point without spending any real money or dilithium because let's face it, earning dilithium is kind of hard in Star Trek Online. Let's say you wanted to take it down to 3 weeks (21 days) that would mean that you need to complete 84 crafting assignments with dilithium. Each one of these assignments would cost you 18,000 dilithium. The current price for 1 zen coin is 164 dilithium. This means that you would need 1,512,000 dilithium which at that cost would be 9220 zen or just over $90. There are also costs for upgrading gear to endgame level 60 if you don't have the energy credits (GP equivalent) but I could go on.

The point of this is that RuneScape is in no way gouging its members for money. That, above, is gouging players for money.

All of this combined with what Trekkie had to say about the WoW pricing (monthly + box purchase) really makes me think that the price increase is fine. If someone enjoys RS as a F2P they'll still subscribe. It's a magnificent game.

Pyrnassius · **Posted:** February 9th, 2015, 2:30 am

I have spoken on this matter before, but this article brings up several other points, one being that Jagex have increase 89.8%. While looking at that in a vacuum, that does seem a hefty increase. However, let's step back and look at the entire picture. How many employees did Jagex have in 2004? How many do they have now? How long did an update take to write and implement back then compared to the way it is now. We have far superior graphics, gameplay is much better (yes, I know, that is only my opinion) and the quality of those updates is much better. The new quests have been pretty awesome overall, with a few little hiccups now and then. As I said earlier, for 35 cents a day, it still represents great value to me. I like their idea of leaving people grandfathered in to old pricing. I myself didn't join until 2011 and it was $10 for me then. I have taken out the Premier package ever since it was first introduced, so if I decide to go back to a monthly fee, I will probably incur the new pricing. Still, considering my son bought Assassin's Creed (the new one) about 6 months ago for $88.00 and pretty much completed it over the Christmas holidays, this game still represents good value for money.
To take one single aspect of a situation and focus on that is misrepresentation. We need to look at the overall implications and the cause and effects of it. And remember, Jagex isn't an independent company any more. The are owned by IVP, who don't care about the individuals. They see a drop in profits from Jagex, albeit from a failed investment in Transformers, and they will be putting the pressure on the company to fix it. An initial increase in membership fees for new members and those who have let theirs expire will help that, but, and this is a great point you did make, Jason, it may also stop others from letting their memberships expire and thus the continued revenue from these players continues to help lift that profitability back to where IVP will step back again. That is just smart business practice, and Jages is ultimately a business.
Another great article, Jason, with plenty of food for thought for all players

Jasonmrc · **Posted:** February 15th, 2015, 9:32 pm

Sorry for the late reply. Life has been keeping me pretty busy.

trekkie wrote:

Considering you pay 60 for the game AND pay a monthly fee, comparing RS to WoW isn't the same.
Increasing it by 1 dollar isn't much, but considering how much it would cost to buy all the expansions would make it for it.

Considering the graphics AND combat pale in comparison, comparing WoW to RS isn't the same. Yet RS tries to compete with them anyways. When RS gets its gears in place and presents comparable content and performance then we can discuss the validity of comparing pricing models.
And according to this page, it costs $20 for the standard game and $50 for the the most recent expansion. All previous expansions are included in the subscription based on your base game purchase.

Honestly, the two games should not be compared as they are on different levels and are different types of games. The only reason they are compared is because WoW is a Big Name Game, a flagship which all other games are held against.

Shane wrote:

First things first, Jagex (just as any private company) is in no way required to share with us the reason. We're the players, not the board, not the shareholders, and not the CEO.

Right, so when your ISP, Fuel, or the host for RSBandB raises the costs, you don't wonder why? What if your hosting costs for RSBandB raised 89.8% next month?

You're right, they are not required to give us a reason. There is no British law of commerce requiring the disclosure of a reason for increasing the cost of a good or service. However, it is common courtesy to give a reason or explanation, howeverso brief as it may be. Jagex said nothing. No “Our costs have gone up” or “To provide for the awesome updates in the coming year”. Nothing.

In 2008 they gave us the reason that credit card prices and fees had gone up, understandably. They also said if you remained a member for 12 consecutive months they would drop the price back to $5 for you. This implies they did not want to increase the price, but the increased costs forced them to.
In 2012 they gave no reason, only the hope of ambitious plans. There was no loyalty option for a decreased price. This increase, which was twice the amount of the previous at $2, was not liked by many, including some of us here.

Shane wrote:

For the last fiscal year Jagex's profits were under 1 million pounds. The previous year they were just a hair under 10 million.

Actually, you are mistaken here. The article you cite is referring to 2013, although the post date is 2014. It is comparing 2013 data with 2012 data. From 2012 to 2013 they had a loss of 8,755,167, or a 90.26% decrease in profits.

Jagex has been working on and off on a digital/futuristic style game since 2007 when they first started on MechScape. This was canceled in late 2009 due to “the project costing tens of millions of pounds” From 2007-2009 Jagex's profit was consistently over 14m(average of 15.83m).
They then started on Stellar Dawn from 2010-2012; those years saw profits of 18.8m, 10.6m and 9.7m(average of 13.03m).
Transformers Universe was worked on from 2011 until late 2014, during those years their profits were 10.6, 9.7m, 0.9m and an unknown amount in 2014(average of less than 10m).
8Realms, a slightly different beast, was released in 2011 and ran until it's closure in mid 2012, having met only 10% of intended sales.
Since 2011 they have begun various other small ventures.
With Stellar Dawn being canceled for costing tens of millions and yet they still turned over a 15m profit during those years, I don't see how it's feasible for Transformers Universe to be the cause of a 8.7m decrease in profit.

Shane wrote:

Now doing any amount of profit is good but after you invest in something large like Transformers and it fails a corporation needs to recover those losses.

You know, it's funny you should say that. In 2012 they hiked the price to 7.95. They also ceased work on Stellar Dawn that year and began work on Transformers Universe the year prior. So this increase was to help fund this one botched project and the new one. Today we're facing another increase, a $1.54 one, and we also see a major project failing.

By this pattern, Jagex likes to charge the Runescape population for their own(Jagex's) failures. If the price increase was going to help fund future desired and needed improvements to, say, Runescape, I wouldn't mind. But history has shown that is not the case. Both of the recent price increases have come on the heels of a major project failure. If Jagex tries another large project it will either be the “Third times the charm” or “The third cry of wolf.”

So far each time they have increased the price they saw an average drop of 6% profits the first year. The first time they then saw an increase of 24% the next year. However the second time they saw a 90% decrease(Note that this decrease was due to many things, some of which I already discussed).

So far we have only talked about non-Runescape events. What things might've happened in the recent years to spark such a decline? Let's see.
2011 was a relatively well received year. No huge controversial updates. The biggest updates of the year included Nex, the Clan improvements, and Bot Nuke day. Because Bot Nuke day did was released in October, it missed the 30th of September deadline for Financials and so would be counted on the 2012 report, not 2011.
2012 was a fun year, seeing the second price increase, the addition of the Squeal of Failtune, the Lodestone Network, Solomon's General Store and Evolution of Combat. All of these in conjunction with the Bot Nuke made for a whirlwind. The Bot Nuking is likely the cause for the price increase and possibly also the introduction of gambling and RWT(SOF & SGS). All of these together amounted to only a 8.56% decrease in profit that year. They kept their head, but drastically changed the face of the game.
2013 saw more EOC changes, 2007Scape, The World Wakes, Runescape 3, New Interface System(NIS), HTML5, Vorago, the concept of Prestige, Bonds, and of course a steady flow of posts about SOF and SGS. I could go into in-depth detail about each of these but I don't think it's necessary(I have previously spoken on many of them, you can visit my Informer page to read them). Despite all these changes, they ended the year with only a 944,833 profit, a 90.3% decrease from the year prior. Now it should be noted that since Bonds were added on the 25th and the Financial deadline is the 30th of September, they would have had no effect on this.

I'm not going to comment about STO. While Star Trek is good and I like STO in general, they have their own elephants to deal with.

Pyrn,
Thanks.
I'm not going to quote your post because you make quite a few good statements. I'll just reply in general.
Updates arguably came out much faster previously and were of comparatively equal (arguably better) relative quality. We used to rely on 1-2 quests a month, now we're lucky to get one. They have over 500 employees now which is likely many times that of what they had in 2004. Their development time only seems to increase and their quality, while providing some good things, has been unimpressively hit and miss on the most important things in recent years. While gameplay and graphics have improved, playability and efficiency have degraded due to being left on the back burner. I can play games with better graphics than Runescape much smoother than Runescape. Although I rarely play at max settings on any game, if played on equivalent midgrade settings most other games would receive a 7 while Runescape would receive a 4 due to its lack of efficiency.

You make a good point about the investors. Jagex has to bring their bottomline up. We don't know what 2014's financials are but I highly doubt they are encouraging. We can only hope 2014 had a positive profit instead of even further negative.

Interestingly(though not surprising) is this: 2007-2010 were their most profitable years. They averaged 16.5m and had their highest to date in 2010 at 18.8m. During this time they for the most part focused on only one thing: Runescape. They did what they did and they did it well. The correlation with 2007-2010 being known as the Golden Years and the fact that they were the most profitable is no coincidence.

References:
http://www.insidermedia.com/insider/central-and-east/126853-profits-plummet-online-games-giant-turns-focus-investment/
http://en.wikipedia.org/wiki/Jagex
http://www.gamesbrief.com/2010/04/free-doesnt-work-try-telling-that-to-jagex-making-38m-from-one-free-game-runescape/
http://www.develop-online.net/news/jagex-claims-most-successful-year-despite-late-financial-report/0113728
https://www.duedil.com//company/03982706/jagex-limited/financials
http://forums.zybez.net/topic/1642083-profits-plummet-at-maker-of-runescape/

_{I am not a financial analyst as y'all know, just thought I should add that disclaimer.}

Shane · **Posted:** February 15th, 2015, 10:09 pm

I see, I read that as the reporting period was starting in December 2013.

To answer your question we'd find a different ISP assuming the price increase was contractually legal. They'd see their business interests as better under this price and we'd be priced out of the market. We wouldn't require a reason as to why since that's just the way microeconomic situations (business deals that aren't contractually binding) work.

And many corporations have a cash cow they use to fund other experiments and recover losses. It is indeed a very common practice to be paying for the "failures" of one product with the revenue of others.

Adbot · **Posted:** February 15th, 2015, 10:09 pm